Trump Tower in Toronto Is in Receivership After Poor Sales

TORONTO — The first building in Canada to bear the name of Donald J. Trump — a 65-story hotel and condominium in downtown Toronto — did not get off to an auspicious start. Shortly after it opened in 2012, it started shedding glass, and for the first of many times, the police had to close the surrounding streets because of falling debris.

On Tuesday, an Ontario court placed the Trump International Hotel and Tower into receivership after the owners failed to make debt payments for more than a year. That came after a three-judge panel on the Court of Appeal for Ontario found last month that the project’s investors had been deceived. And in a third legal action, the hotel’s owners tried to remove the Trump name from the building and cancel his company’s contract to manage the hotel.

Apartments and hotel rooms in the building that were sold as condominiums to dozens of investors have consistently lost money, and are probably now unable to be sold except at a steep loss. The vast majority never found buyers to begin with and have been sitting empty for years.

The failure of the Trump Tower in Toronto, a city that has been one of North America’s most buoyant real estate markets, stands out as a blow to the brand in Canada.

Mr. Trump’s name is on the building, but he did not develop it and has never owned it. Talon International Development, a real estate company owned by Alex Shnaider, a Toronto investor, paid to license the name and have Mr. Trump’s company manage the hotel, hoping that his reputation in business and his reality-television celebrity would draw in hotel guests and, more important, investors.

“It was a difficult project from the get-go, then 2008 happened,” said Symon Zucker, a lawyer for Mr. Shnaider. “That changed the dynamics of the hotel industry. All of a sudden, what looked like a good deal wasn’t.”

Citing a confidentiality agreement, Mr. Zucker declined to describe how his clients viewed the management of the hotel by Mr. Trump’s company. But in April, he told The Toronto Star that his clients were “no longer interested in the Trump brand” and suggested that Mr. Trump’s move into politics was the reason.

“It’s more important for him to be president than run a successful business,” Mr. Zucker said then.

Alan Garten, executive vice president and general counsel of the Trump Organization, said that “there were no allegations of fraudulent misrepresentation against Mr. Trump.” He added: “Rather, those allegations focused on other parties. So, to the extent they survive, they have nothing to do with my client.”

The hotel continues to operate. At lunchtime on Thursday, the building’s valets were parking a Rolls-Royce, a Bentley, and Mercedes-Benz and Porsche S.U.V.s around the building’s forecourt.

But in the America restaurant on the 31st floor, the scene was much less extravagant. Though the building is in the heart of Toronto’s busy financial district, the lunchtime crowd was tiny — just a half-dozen occupied tables and two customers at the bar. The dark wood floor was noticeably worn and scratched, and many of the tables had chipped edges.

Mitchell Wine is a lawyer representing 22 of the investors who are suing Talon International, its executives and Mr. Trump. In 2004, when the project was announced, Mr. Wine said, the Trump brand was an especially powerful draw for immigrants to Canada. When he asks his clients why they put money in, the answer is always the same: “Donald Trump, ‘The Apprentice.’”

Today, “we’re looking at Donald Trump through 2016 eyes,” Mr. Wine said. “But back then, he was very big, he was very much in the middle of things.”

Mr. Shnaider, who came to Canada as a teenager from Russia by way of Israel, is a longtime investor whose holdings have at various times included control of a steel mill in Ukraine and, for one season, a Formula One racing team. He did not want to simply erect a hotel and own it; his plan was to sell it in small pieces to investors, who would buy individual rooms with the promise of profits from the hotel renting them out to guests.

Many of the investors, the court ruling suggests, were not knowledgeable about what they were buying.

When Sarbjit Singh visited the Trump Tower sales center in 2007, he was a warehouse supervisor who earned about 55,000 Canadian dollars a year. A sales agent gave him a printout saying that if he bought a hotel room for 804,000 dollars, he would earn between 14,000 and 50,000 dollars a year after expenses, evidence presented to the court showed.

Another purchaser, Se Na Lee, asked how often the rooms would be filled and was told that “55 percent occupancy was a worst-case scenario because of the Trump name,” the court found.

But those figures “were merely hypotheticals dreamed up by Talon’s principal, Mr. Levitan, who, it will be recalled, had no previous experience in the hotel business,” the court said. It also said that expenses were omitted or “grossly understated” in the forecast.

When the hotel finally opened, occupancy rates were more like 19 percent to 45 percent, and costs ran 50 percent higher than promised, the court found. Instead of profits, Mr. Singh lost an average of about 4,000 dollars a month on his investment.

The appeals court canceled Mr. Singh’s contract with Talon, which means the company must repay him about 248,000 dollars, plus legal costs. Ms. Lee’s claims are to be settled in a trial court; she says she has lost nearly 1 million dollars.

The appeals court also ruled that a trial court could hear claims by buyers “based on oppression, collusion or breach of fiduciary duties,” for which Mr. Trump, Mr. Shnaider and Mr. Levitan could be held personally liable.

Mr. Zucker, Mr. Shnaider’s lawyer, disputed suggestions that Talon took advantage of naïve buyers, many with a limited command of English.

“They came into a real estate agent’s” office, he said. “I mean, we didn’t drag them in off the street. I guess they were buying into the Trump dream.”

Mr. Garten brushed aside the possibility of Mr. Trump having to pay damages in the case.

“There would be no factual or legal basis to hold my client liable,” Mr. Garten said, principally because Mr. Trump “was not a party to any of the purchase contracts with the buyers.”

With the hotel in receivership and Talon in financial distress, Mr. Wine said his clients’ biggest problem may be collecting what they are awarded in court.

Documents entered at the receivership hearing show just how badly things went wrong for Talon. In the end, it managed to sell just 50 of the tower’s 261 hotel rooms and only 44 of the 118 apartments.

Unless a higher bid comes in, the investment group that now holds the mortgage, JCF Capital, told the court it intended to take ownership of the project for the amount it is owed: 301 million dollars, or $225 million. Jay Wolf, the JCF managing partner handling the matter, declined to comment on the group’s plans, including whether it would renew Talon’s effort to sever the Trump connection.

Trump Hotels said in an emailed statement that “regardless of any capital partner or ownership changes that may take place, we will continue to operate the property under our luxury hotel brand flag.”

It added: “This has been a record year for the hotel, and we look forward to its continued success.”